Claiming Your Social Security Benefits

As you approach your sixties, many age-related financial and planning milestones present themselves. One primary concern is when to file for Social Security benefits, because choosing when you claim can affect the value of your benefits.

Claiming Your Social Security Benefits - Roosevelt

For many Americans, Social Security benefits will be a primary retirement income source.

Unfortunately, most Americans do not believe they understand this critical system. Take this Social Security quiz to see how well you understand Social Security. There are many factors that can determine when it is best for you to file. Your strategy considerations will include age and estimated benefits for yourself and your current or former spouse, as well as the other retirement income opportunities you have in place. Verifying your estimated benefits and personal information is an essential part of your strategy.

Important Milestones for Social Security Benefits Claiming

You can apply for Social Security benefits at any point from ages 62-70. Your circumstances during the many milestones along the way can affect the timing of your claim:

Age 59.5 – Retirement Income Penalty Ends

This is the age when you can withdraw money from traditional IRAs, 401(k)s or similar retirement plans without restrictions. You can also begin taking money out without an added 10% tax penalty. However, account withdrawals will still be taxed at normal tax rates.

For most people, it’s better to delay withdrawing funds from retirement accounts at this relatively young age unless they have specific financial needs. Usually, the value of maintaining tax-preferred individual retirement savings exceeds the benefit from early spending.

Age 60 – Survivor Benefits Become Available

This is the first year you can collect a Social Security survivor benefit if your spouse or ex-spouse has died. Please note, this applies only if you were married for at least 10 years and never remarried.

Claiming Your Social Security Benefits - Eisenhower

Age 62 – Earliest Option to File for Your Social Security Benefits

The earliest age that you could collect your Social Security retirement benefit. Most people should not file for benefits at this early age. It can lead to your benefits being permanently reduced. Moreover, your spouse’s survivor benefits could also be slated for permanent reduction. However, certain spousal strategies may be an exception. This is also the age at which pensions from long-term employers may begin.

Age 63.5 – Bridge to Medicare

This isn’t an official milestone, but it can be an important age for laid-off workers who are offered COBRA health care benefits. COBRA benefits typically last for 18 months, and 65 is the age where Medicare medical coverage can start. Therefore, 63-and-a-half is the earliest age at which, if a person was laid off and covered by COBRA health care benefits, that COBRA benefits would provide a healthcare bridge all the way until they are eligible for Medicare.

Age 65 – Medicare Eligibility Age

This is the benchmark for Medicare eligibility age. Most people should sign up for Medicare benefits within a seven-month time period around this birthday. It enables them to avoid lifetime surcharges on Medicare benefits. There are a few exceptions to this requirement, including active employees who are still covered under an employer health plan.

Age 66 – Social Security Magic Age

For many retirees born 1943-1955, the “magic age” is 66. Because this is the official “full retirement age” (FRA) for many seniors, this milestone enables you to take full advantage of Social Security claiming strategies. At this age a number of creative Social Security strategies become available. Note, however, that recent changes in tax law have changed claiming strategies open to you. For instance, the popular “File and Suspend” strategy was done away with in May 2016, with certain grandfathering provisions that had to be met by end of April 2016. Consult with a knowledgeable financial professional to help you determine a suitable claiming strategy.

Claiming Your Social Security Benefits - Reagan

Age 70 – Social Security Income Should Begin

This is the age at which there is no additional benefit to delay filing for Social Security benefits. People who are able to delay filing until the age of 70 have maximized their lifetime monthly Social Security benefit. They should file immediately, as there is no benefit to waiting any longer.

Age 70.5 – Required Retirement Account Distributions Begin

When they reach age 70.5, owners of retirement accounts such as IRAs, 401(k)s or other similar retirement plans are required to start taking specified required minimum distributions (RMDs). They actually have until the following April to make take the first year distribution. After that, each year’s distribution must be taken by Dec. 31 of that year. The total required distribution is based on the total values of all of a person’s IRAs and retirement accounts as of Dec. 31st of the previous year. The total distribution may all be taken out of any one account or may be split among the accounts as needed.

Important Changes for Social Security Benefits

The Bipartisan Budget Act of 2015 made significant changes to Social Security benefit claiming strategies which retirees may utilize:
  ⚫   File and Suspend Gone – Retirees who reached FRA used to be able to use the “file and suspend” strategy. However, the Bipartisan Budget Act of 2015 contained provisions which closed loopholes allowing for file and suspend. These changes came into effect on May 1, 2016, which ended the availability of this strategy for retirees who hadn’t reached FRA by late April 2016.
  ⚫   There were grandfathering provisions for retirees born on or before January 1, 1954 (people who reached FRA in time). However, they had to file and suspend by April 29, 2016. Outside of this date, people now can still suspend their benefit if desired. However, it’d end all spouse and children benefits relating to their worker benefit.
  ⚫   Restricted Applications – The Bipartisan Budget Act of 2015 also impacted the “restricted application,” or the “file as a spouse first” strategy. Under the new law, restricted applications were done away with for anyone born after January 1, 1954. People born after this date can still file a restricted application upon reaching their FRA.
  ⚫   If the other spouse were able to suspend their benefit (having reached FRA themselves), they needed to do so before April 30. With the deadline passed, now seniors will have to take an entirely different route for claiming than they originally planned – or now have these paths closed to them. These changes make it imperative to work with a knowledgeable professional to determine a suitable claiming strategy.

Making a Decision about Social Security Timing

Determining when you or your spouse will start taking Social Security benefits may be the most important decision of your retirement. It’s a life event which can mean thousands of dollars lost in missed benefits.